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Sen. Charles Schumer says 'lld-style' tax reform won't work

Spending cuts deal depends on election outcome

By Dave Michaels The Dallas Morning News

Posted:
10/09/2012 11:54:53 PM MDT

Updated:
10/09/2012 11:56:02 PM MDT

WASHINGTON -- The Senate's third-ranking Democrat on Tuesday snubbed the presumed framework for a year-end deal to avoid tax hikes and spending cuts, saying any deficit-reduction deal should raise tax rates on the wealthy.

In a speech at the National Press Club, Sen. Charles Schumer said the "old style" of tax reform, which trades lower tax rates for curbing tax breaks, is "obsolete" and can't solve today's fiscal problems. Many House and Senate lawmakers have relied on that model as they try to craft a plan to avert automatic tax hikes and $1.2 trillion in spending cuts scheduled to occur in January.

Schumer, D-N.Y., said Congress should use the lame-duck session to raise tax rates on the wealthy to levels that existed during the 1990s, before they were lowered in 2001 and 2003. At the same time, some tax breaks and loopholes should be curtailed, he said. The additional revenue should be put toward deficit reduction, he said.

"It would be a huge mistake to take the dollars we gain from closing loopholes and put them into reducing rates for the highest income brackets, rather than into reducing the deficit," Schumer said.

Schumer said he wasn't speaking for other Democrats, some of whom are working with Senate Republicans in a "Gang of Eight" to identify a compromise on taxes and entitlement spending. The group is holding three days of meetings this week -- which started Tuesday -- in Mount Vernon, Va., Bloomberg News reported.

Allowing the Bush tax cuts for high-income taxpayers to expire would raise about $866 billion over 10 years, according to the White House.

Many experts say there is a need to identify at least $4 trillion in savings over the next decade.

How much of that comes from tax increases, as opposed to spending cuts, turns on the outcome of the November election. President Barack Obama and Mitt Romney have vastly different visions for tax policy and federal spending programs.

Obama wants to maintain current tax rates for lower- and middle-income people and raise tax rates on the wealthy. The president has identified sources of new revenues worth about $1.5 trillion, which Schumer said was the "right" target.

Romney's tax-reform plan would reduce all current income tax rates by 20 percent while curbing tax breaks for upper-income taxpayers. He says his plan wouldn't add to the deficit.

Congressional Republicans have generally called for a similar style of tax reform. They haven't supported deficit-reduction schemes that raise taxes.

"A tax reform framework that lowers rates and closes loopholes has support from both parties, including the Obama administration, and it offers the best hope for bipartisan efforts to create robust economic growth and reduce our deficit," said Kevin Smith, a spokesman for House Speaker John Boehner. "Sen. Schumer seems to be off on an island with these remarks."

Schumer maintained that a "grand bargain" could yet be reached during the lame-duck session of Congress. Democrats would consent to entitlement reforms if Republicans agree to drop "the promise of a lower tax rate in tax reform," he said.

Congress has typically approached tax reform by lowering tax rates and limiting deductions, credits and exemptions. Congress last passed a wholesale tax-reform law in 1986, but that deal did not seek to reduce budget deficits.

With the federal debt approaching 73 percent of GDP, several special commissions have cited a need to raise additional revenue as well as cut spending. The 2010 Simpson-Bowles Commission identified several options for tax reform that would lower individual tax rates while limiting the value of deductions and credits.

Schumer said his proposal would not raise tax rates on households earning less than $250,000 and would preserve their tax breaks for mortgage interest, charitable deductions and state and local property taxes.

He said lawmakers should accept that rates need to rise on high earners because it is "mathematically impossible" to lower tax rates while raising significant new revenue from tweaking tax deductions and loopholes.

"It is an alluring prospect to cut taxes on the wealthiest people, reduce the deficit, and hold the middle class harmless, but the math dictates you can't have it all," Schumer said.

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